An Analytical Reading to Legislations and Investment Supportive Decisions

Tuesday، 07 November 2017 - 02:46 PM

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Dr. Ahmad Aboul Hassan Zarad

Egypt has recently witnessed a set of developments to encourage and attract investments, on top of which are the issuance of the new Investment Law, the approval of the law on Regulating the Activities of Gas Market, the issuance of the executive regulations for the Law of Facilitating the Procedures of Licensing the Industrial Establishments as well as the Finance Lease and Factoring Law, amendments in the Companies and Capital Market Laws, and cancelling the law of (Soukok) bonds. In Addition, there was a number of decisions that enhance Egypt’s status as an attractive environment of investment, including establishing the Suez Canal economic zone, and the Golden Angle economic zone, among others.

It is known that these laws and legislations are a continuation of a series of previous legislations; salient of which are: Companies Law No. 159 of the Year 1981, Private Economic Zones Law No.83 of the Year 2002 that was enacted in May 2002, the Microfinance Law No. 141 of the Year 2014 to regulate the services of the microfinance enterprises on November13, 2014, Law No.82 of the Year2002 on the Protection of Intellectual Property Rights in May 2002, Mineral Resources Law No. 198 of the Year 2014 and the Income Tax Law No. 91 of the Year 2005.

The House of Representatives agreed on May 7, 2017, on the new investment law No.72 of the Year 2017 and it was ratified by the President on June1st, 2017.The law consists of 94 articles that include many advantages and investment grants; salient of which are: allowing companies to online registration, unifying the registration authority that the investor deals with, and providing a group of advantages to invest in the strategic projects such as tax reduction, free lands, and the customs outlets for the exports of the investment project. Furthermore, the law gives the investor the right to transfer his revenues abroad. There are other advantages of the law like establishing public and private free zones, encouraging investors and facilitating their choices through setting an investment map as well as the establishment of the Supreme Council for Investment, the General Authority for Investment and Free Zones, and setting flexible and various mechanisms to settle the investment disputes.

(a) Encouraging Investment through the Investment Map:

Article 17 of the law stipulated to set an investment map to determine the type, system, geographic area and sectors of the investment. It also determines the real-estates owned by the state or other judicial persons prepared for investment, and the system of acting according to the kind of investment. This article stipulated revising this map at least once every three years or when it is necessary.

(b) Establishing Public and Private Free Zones:

Article 33 is one of the most prominent articles in the law as it stipulated that the establishment of a free zone that includes a whole city must be by virtue of a law, and this free zone aims essentially to export. This article was greatly accepted in the business society especially that the number of projects that uses the free zones system reached 209 projects until March31, 2017, by capitals exceeding $5 billion and investment expenditure exceeding $11.3 billion.

(c)Investors Services Center:

The Investors Services Center was established by virtue of article 21. It is considered an administrative unit established in the investment related authority or one of its branches. This unit applies a system to facilitate the investor’s procedures to gain all approvals and, licenses needed for his investment project during the legal periods stipulated in this law along with providing all data and information needed.

(d) Advantages for Strategic Projects, Tax Reduction and Free Lands:

The new investment law provides by virtue of article 11 many investment advantages like a 50% tax reduction for projects established in the most needy areas and 30% discount for the following projects: extensive manpower projects, small and medium enterprises, projects that depend on or produce renewable energy, national and strategic projects, tourism projects, producing electricity and automotive industry projects, in addition to timber industries, furniture, printing, packaging and chemical industries, antibiotics, cancer medicines, cosmetics, food, farm products and cycling of the agricultural wastes as well as engineering, mineral, textile and leather industries.

In addition to reducing the price of land purchased for industry purposes on condition that the investor starts the project operation within two years and providing support to the infrastructure projects aiming to link between the investments and the consumers as well as to gain the approval on the return of private free zones.

Investment System in Technological Zones:

Article 32 explained the mechanism of licensing for the construction of technological zones in the field of information technology and communication industry including all related industrial activities such as the design and development of electronics and databases, information technology outsourcing, software, technological education and many others. This article stipulated that each and every project established in the technological zones shall enjoy the special incentives stated in article 11 of the same law according to the sector it is established in.

Right of Investors to Transfer Profits:

According to Article 6 of the Law of Investment, the investor has the right to finance the project from abroad in foreign currency without restrictions and is entitled to own, manage and use the project and to gain and transfer profits abroad, or liquidate the project and transfer all or some of the of liquidation money abroad without prejudice to the rights of others.

Flexible and Fast Investment Dispute Settlement Mechanisms:

Most articles of the investment law are characterized by including fast and flexible mechanisms to resolve investment disputes in a friendly way. This is represented in the negotiations between dispute parties as stipulated in Article 82, the establishment of Appeals Commission by virtues of Articles 83 and 84, the Ministerial committee for investment disputes settlement stipulated in Article 85, which is concerned with reviewing all submitted requests or complains or the disputes that may arise between the investors on one hand and the government or affiliated entities or authorities or companies on the other hand and the ministerial committee for of settlement investment contracts dispute stipulated in Article 88, which is concerned with resolving disputes arising from investment contracts in which the government or any of its affiliated entities or authorities or companies is a party.

This is in addition to Article 90 which states that the investment disputes related to the enforcement of the provisions of this law may be resolved in the way agreed upon by the investor or according to the provisions of Law No. 27 of 1994 Concerning Arbitration in Civil and Commercial Matters. Also, both parties may, at any time during the period of dispute, agree on appealing for the means of settlement in accordance with the existing rules governing dispute settlement. This includes the right of both parties to have recourse either to institutional or ad-hoc arbitration.

Article 91 stipulates the establishment of an independent arbitration and mediation center called “The Egyptian Center for Arbitration (EAC)” that shall oversee settlement of investment disputes arising between the investors themselves or between the investors on one hand and the government or any of its affiliated public or private entities on the other hand in case the parties, at any time during the period of dispute, agree to recourse to arbitration in accordance with the existing Egyptian rules governing arbitration and dispute settlement.

President Abdel Fattah El-Sisi on Monday 7/8/2017 decreed Law No. 196 / 2017 on regulating the activities of gas market aiming to limit the role of the state to be responsible only for regulating the market, and thus allowing the private sector companies to enjoy direct trading in the natural gas through the use of the infrastructure of pipelines and networks. According to this law a new gas market regulatory authority is set up, which is an independent public authority that aims to regulate and monitor all gas market activities stipulated in this law. It shall make gas networks and facilities available for others upon a request of company’s managers. It, also, shall guarantee the service quality in addition to attract and boost investments in the gas market as well as creating the suitable environment to achieve freedom of competition.

Moreover, this new authority shall set a plan for the liberalization of the gas market, which is going to be implemented gradually on phases and it shall define the time of each phase as well as the necessary procedures needed for its implementation.

The law allows the private sector to participate in regulating the gas market through five entities, namely: gas transport system operator, gas distribution system operator, gas storage facilities operator and gas supplier. The law, also, allows all operators and company owners in the field of gas industry to make use of this system in return of a certain tariff according to the existing rules and regulations of the new gas market regulatory authority.

According to the statute of the Industrial Licensing Law that was issued on the 16th of Agust 2017, the time allocated to obtain a license shall be reduced from 600 days to less than 7 for notified license and 30 days for prior license. This, also, includes reducing the number of entities that should be contacted to obtain a license from 11 to only one in addition to shortening the procedures, which the investor used to take from 7 to only 3 including the internal procedures of the Industrial Development Authority from 154 to 19 only. Not to mention changing the licensing system from a manual to an automated system.

The Financial lease is defined as a means of finance, which plays a prominent role in financing investment, particularly with regard to small and medium industries which aspire to purchase industrial activities requirements, such as equipment and machinery, etc., and funding them over several years to reduce the investment cost to start operation. [5]

Whereby, the right to use a particular asset owned by the lessor shall transfer to the user (lessee) under a contractual agreement between the two parties, which gives one of them the right to use an asset owned by the other party in exchange for periodic payments for a specified period of time. The lessee may at the end of the period, purchase the asset from the lessor. This activity has been applied for the first time in Egypt 22 years ago, by virtue of Law No. 95 of 1995[6].

Factoring means that the factoring company agrees with the sellers of goods and service providers to purchase current and future financial rights arising from the sale of goods and services to the company which shall provide some services related to the management of those rights .The number of existing companies engaged in factoring activities, by the end of 2016, reached 7 companies[7].

On August 23, 2017, the Council of Ministers approved the Law of Financial lease and Factoring. The draft law consists of 85 articles divided into 7 chapters.

The reason for putting lease and factoring activities under a single legal framework, is that it is a non-bank financing package to serve economic projects, whether by providing the necessary funding for these projects to get their needs of the tools and requirements necessary for the activity, without requiring full payment of the purchase price of the capital assets (through financial leasing), or by providing liquidity for these projects during operation (through factoring). [8]The new law includes the introduction of micro- leasing- finance, financial lease for consumer purposes, and concentration on operational leasing .The new law aims to enhance financial inclusion and contribute to the spread of non-banking financing means.

This activity, during the first half of this year 2017 received contracts worth L.E11.8 billion, compared to about L.E11 billion in the same period last year at an increase of 7%, while the number of contracts fell from 1239 to 894 contracts.

Micro-finance means any finance for economic, productive, service or commercial purposes in the fields and in value determined by the Board of Directors of the Authority. Micro-finance is a major means of promoting the contribution of low -income groups to economic activity. Providing an access to different financing means for individuals and owners of micro enterprises contributes to reducing unemployment and contributes to improving the incomes of poorer families. Moreover, it has a positive impact on increasing the volume of investment and employment in the national economy. The activities of microfinance are regulated by Law No.141 of 2014, issued on November 13, 2014.

Conclusion:

The laws and regulations regulating investment as a whole constitute a general framework that enables every investor to make the business easily, swiftly and without obstacles. In addition, it ensures a stable and secure environment governed by the rule of law and the rules of justice and fairness.

Thus, the Egyptian legislative environment, in general, allows businessmen to simply carry out the procedures of obtaining all necessary approvals, permits and licenses, including shortening of the time of issuance of industrial licenses from 600 days to less than 7 days at the present time. Moreover, it guarantees the investor the right to transfer the profits of his company abroad without restrictions and in foreign currency. It offers him a package of privileges, facilities, exemptions and tax cuts .These laws also encourage investments in mega projects as well as in small, medium and micro enterprises. They enable investors to settle their disputes within a clear legal framework that provides all the guarantees of litigation and most importantly finds flexible and quick mechanisms for settling the disputes friendly without delay through negotiations, arbitration or mediation, etc.

[1]Law No.72 of the Year 2017,Egyptian Gazette, on May 31, 2017 https://www.scribd .com/ document/ 350083634

[2] The full text of the Law in Al masry Alyoum newspaper (2017 / 8 / 7), the following link:

[8] Statements by Dr. Sahar Nasr, Minister of Investment and International Cooperation, quoted by Abdel Halim Salem, Text of the New Financial Lease law after the government's approval, Wednesday, August 23, 2017.

[9] The General Financial Supervisory Authority website. The following link: http://www.efsa.gov.eg/jtags/microfinance/index.html